IBM Profit Tops Estimate; Revenue Falls Short

4/17/2012 5:39 PM ET

International Business Machines Corp. (IBM) said Tuesday after the markets closed that its first quarter profit rose 7% from last year, helped by strong revenue performance in its software and technology services businesses.

The company's quarterly earnings per share, excluding items, also came in above analysts' expectations, but its quarterly revenue fell short of analysts' forecast. At the same time, the company raised its full year earnings outlook.

"In the first quarter, we drove strong profit and earnings per share growth. We delivered another excellent software performance, expanded services margins, and continued the momentum in our growth initiatives," said Ginni Rometty, IBM president and chief executive officer. "Our investments in growth market countries continued to generate strong revenue growth across software, hardware and services while contributing to the company's ongoing margin expansion."

IBM shares are currently losing 2.15% in after hours trading after closing the day's regular trading session at $207.45, up $4.73 or 2.33%. The shares trade in a 52-week range of $157.13 to $210.69.

For the first quarter, Americas revenues grew 1% to $10.5 billion, while Europe/Middle East/Africa revenues declined 2% to $7.6 billion and Asia-Pacific revenues increased 4% to $6.1 billion. OEM revenues for the quarter fell 17% from last year to $509 million.

The company's global technology services group reported first quarter revenue of $10.3 billion, up 2% from a year earlier. Global business services group's revenue fell 2% to $4.6 billion in the first quarter. IBM is the world's biggest computer services firm.

The estimated services backlog at the end of the first quarter was $139 billion, down 2% year over year at actual rates.
IBM's software revenue rose 5% to $5.6 billion in the first quarter. First quarter revenues from the company's key middleware products, which include WebSphere, Information Management, Tivoli, Lotus and Rational products, increased 7% to $3.5 billion, with WebSphere revenue up 16%.

First quarter revenues from the company's Systems and Technology group fell 7% to $3.7 billion, with revenues from System z mainframe server products down 25%. IBM is the world's biggest server maker.

For the first quarter ended March 31, 2012, the Armonk, New York-based technology giant reported net income of $3.07 billion or $2.61 per share, compared to $2.86 billion or $2.31 per share for the year-ago quarter.

Excluding items, operating earnings for the first quarter were $3.27 billion or $2.78 per share, compared to $2.99 billion or $2.41 per share in the prior year quarter.

On average, 22 analysts polled by Thomson Reuters expected the company to earn $2.65 per share for the first quarter. Analysts' estimates typically exclude special items.

Gross margin for the quarter improved to 45.1% from 44.1% a year ago on a reported basis and to 45.7% from 44.5% last year on an adjusted basis.

Big Blue's total revenue for the first quarter grew 0.3% to $24.67 billion from $24.61 billion in the same quarter last year. Twenty-one analysts had a consensus revenue estimate of $24.77 billion for the first quarter.

IBM returned $3.9 billion to shareholders during the first quarter through $0.9 billion in dividends and $3.0 billion of share repurchases and ended the quarter with $12.3 billion of cash on hand.

IBM has been acquiring small companies to drive growth and expand product offerings. The company has plans to make $20 billion worth of acquisitions between now and 2015. During the first quarter, IBM completed the acquisitions of DemandTec., Emptoris Inc. and Green Hat.

However, earlier this month, IBM agreed to sell its retail store point-of-sale solutions business to Toshiba TEC Corp., a subsidiary of Toshiba Corp. (TOSBF.PK), for about $850 million. The deal is expected to close late in the second quarter or early in the third quarter.

Looking forward, the company raised its full year 2012 earnings guidance to at least $14.27 per share from its previous guidance of at least $14.16 per share. The company also raised its full year 2012 operating earnings guidance to at least $15.00 per share from its prior guidance of at least $14.85 per share. Analysts currently expect the company to earn $14.93 per share for the full year 2012.